Credit Cards Vs CIBIL Score!!, NPA, Customers

This 3.5”x2” plastic card has brought revolutionary changes in the lifestyle and spending habits of people at large, the world over. Yes, you are right! I am talking of credit cards. Right from secured credit cards to Business cards, the emphasis is on spending only. In a consumer- oriented society, every product is designed and marketed to augment sales by targetting the customers and nothing else. Visit any TV Channel or social media platform, you will be prompted to buy and buy only, by offering easy payment options.

You are tempted to buy a product without which you could have been comfortable for a few months. Whether, You are enjoying a dinner with your family, a get together with your friends or, hosting a dinner for your client, there is every possibility that you will be flashing this small beauty lying in the cozy comforts of your wallet for making payment of the bill.!

image courtesy: bing.com

Though India still a naive market as compared to the developed countries, we find customers holding 2 to 3 credit cards in the urban and metro areas these days. Their flamboyant lifestyle of keeping multiple credit cards and spending lavishly is in contrast to other developed countries. Statistics available from authentic sources portray an average American holding 2.35 credit cards with an outstanding payment of 6000$ in the USA. 15% of families report spending more money than they receive each month. Of the American families that spend more than they receive each month, 43% borrow and use credit cards to finance the shortfall.

My Indian friends might be curious to know the average income of an American?? Any guesses? Ordinarily, any American gets monthly check of 5900$. This will provide you an idea about the spending habits of an average American. Though there is no confirmed data as far as behavior of Indian customers is concerned but I am confident in predicting that by nature Indians have tendency to spend only a part of their salary. For that matter, they exercise prudence by saving some of their income for rainy days unlike their more illustrious counterparts from the developed countries.

A credit card is the best way for upgrading your credit score( CIBIL Score) but at the same time, you tend to impair your credit history by taking it for granted. The moment you try to fall into the trap of Credit card companies who highlight minimum credit card payment on your bill, you are likely to ruin the credit history. Besides, credit card companies in India charge interest @41% which keeps multiplying every day. Going by the “72” formula, amount of bill is going to double in only 17 Months.

image courtesy; bing.com

Before exploring how the credit score is spoiled, let’s have a look at the benchmark followed for updating your credit score(CIBIL Score) by the credit bureau regularly. Your discipline in utilizing the credit facilities and paying off your debts is observed silently by the credit bureau( Trans Union or Experian). The status of all your accounts is updated by your Banks and credit card companies regularly through an auto mode computerized system. Please see the parameters attributed to updation of your credit score by the Credit Bureau:

Repayment history	35%
The amount owed by borrowers	30%
Number of years servicing the debt	15%
Number and amount of recent loans availed or applied for	10%
Credit Mix	10%

Looking at the above chart, you will appreciate that every aspect of your credit history is taken into consideration for arriving at the final credit score. Hopefully, the understated tips will help you in maintaining the required discipline in managing your finances in future:

• Pay Loan EMIs & Credit Card Dues on time. Avoid paying the part amount of the credit card bill
• Keep the credit limit utilization to below 30%
• Don’t apply for any credit facility with multiple institutions/Banks
• Maintain a gap between two credits
• Don’t exercise the debt settlement option
• Try to have a proper mix of secured and unsecured loans
• Avoid regular inquiries.

image courtesy: bing.com

• Excellent: 750-900
• Good: 650-750
• Satisfactory: 550-650
• Poor: 300-550

The Banks will not entertain your request for any credit facility if your credit score ( CIBIL Score) is anywhere less than 650 as they deem you to have been exposed to higher credit risk. However, the interest rates will be very high if some credit institution ventures out to finance such a category of customers.

But if you’re rebuilding your credit score or starting from scratch, it can be difficult to get approved for a credit card in the first place. And, once you do have a credit card, it’s easy to damage your credit score and make it worse than before you started. That’s especially true if you don’t know the best ways to manage your credit cards. 

image courtesy: bing.com

• You will agree that such a situation arises only when you have been a habitual defulter and not maintaining any credit discipline in your life. Haphazard planning, frequent applications for granting fresh unsecured loans, payment of part bills, frequent Balance Transfer, 100% availment of credit limits regularly, spending more than your means are some of the factors that contribute to this unhealthy credit score.

Now let us see how to improve this unacceptable score. It may take some time but a disciplined approach will certainly help in reconsntruction of the universally accepted scores. Please follow the undernoted piece of advice to bring qualitative and quantitative improvement in Credit Score :

1. Go for a Secured  credit card against Fixed Deposits
2. Go for Loan against Gold/LIC Policy/Shares
3. Go for a Consumer Durable Loan

Friends, I hope you are clear on using your credit cards and maintaining a healthy credit score which may help you accessing quick and cheap credit offers from the Banks in the future.

Disclaimer: The material and information contained on this website/Blog is for general purposes only. You should not rely upon the material or information on the website as a basis for making any business, legal or any other decisions. Any reliance you place on such material is strictly at your own risk and responsibility

CIBIL Score: Your Creditability

Credit institutions/Lenders/Bankers feel proud in attracting their potential customers with slogans like”Get your Loan approved in 10 minutes”. Yes this is true and possible these days as 24×7 access to the CIBIL score helps the Bankers/lenders to approve or reject your Loan application in a few minutes only.

The first step for appraisal of any credit facility is extraction of CIBIL report and the lenders are in a position to convey principle approval /Rejection immediately

Relevance and importance of CIBIL reports can be gauged from the fact that Lenders found it really tough to co-relate information provided by the Loan applicants prior to 2007. As a Banker, we had to rely on the affidavits provided by the ap;licants declaring (1) that they have not availed any credit facility from any Bank/Financial Institution (2) that there was no default with any financial institution. Sometimes the information would prove to be false as the applicants outsmarted the appraising officers of Banks/Lending Institutions by concealing the factual position.

But with the advent of CIBIL reports, concealment of any information is beyond comprehension now. The task of maintaining a good score has become a necessity for the Loan seekers. You are entitled for one Free copy of your three credit reports once a year. That means you can have one report each from Transunion,Equifax,Experian every year. This helps you to have a look at what the financial institutions/banks are reporting for your Loan accounts and other related inormation. Accordingly necesaary steps can be intitiated to improve your credit score.

Your CIBIL Score is calculated by perusing your credit behaviour as appearing in the Accounts and Enquiries section of your CIR(Credit Information Report). The range of credit score varies betwen 300 to 900. Generally a score of 700 and above is considered good by the Lenders. Almost 80% of loans are sanctioned with a CIBIL score of 700 and above.

A few important parameters needs to be noted for building your good crddit score:

1. Payment History: Never default in payment of your Loan installments or other obligations. Always pay all installments regularly in time
2. Utilisation Level: Try to avail a portion of credit card limit as per your genuine credit needs to get a review of increase in credit limit in future. Dont avail the sanctioned credit limit to the full regularly. Avoid Cash withdrawal as far as possible
3. Credit Mix: A balanced mix of secured and unsecured loans helps to improve your credit score. If you are availing only unsecured loans like Credit Card,Personal Loans,Clean Overdrafts etc, the score may not move up. However, the simultaneous availment of Home Loans or loans backed up by a collateral security would help in upgrading/maintaining a good credit score
4. Multiple Inquiries: Don’t make too many inquiries as it impacts your credit score negatively for the reasons (1) The loan burden is likely to increase in future which may not be in consonance with your income(2) You are trying for loan facility from a large number of lenders and your application is being rejected. In both the cases your credit score is going to be impacted adversely.
5. Pay Full Amount:Never fall prey to the guiles of credit card companies for paying the minimum amount of your bill. This not only attracts very high interest rate but also affects your credit score
6. NOC: Always insist for an NOC after making full and final payment of your Loan account. This will help in getting your CIBIL report corrrected in case of any wrong reporting by the Bank/Lender.

With more than 40 years experience in managing Bank/NBFC credit portfolio, I found a large number of CIBIL reports with NA or Zero credit score making it difficult to appraise a particular loan proposal.

This situation normally arises in the case of new customers or weaker section of the society as NA or 0 score happens due to non availability of credit track record for more than 6 months. I could recollect the faces of potential borrowers getting pale on finding their Credit Report with 0 Score apprehending rejection their apllication outrightly

Customers as well as the lenders are more enlightened these days now. Lenders tend to gather other elevant information to correlate with these reports before sanctioning such cases. .

In such circumstances Transunion 2.0 can be perused which provides quantum of risk of new customer from High, Medium, low with numerical value of 1 to 5. This is handy in case of small borrowers.